Zimbabwe, in an economic quagmire for nearly two decades, has begun to implement economic reforms that, if continued, could help the nation improve the quality of life for the majority of its citizens. This nascent reform movement also suggests that government leaders have realized that its current singular reliance on China will not solve the country’s economic ills.
Recent efforts by Finance Minister Patrick Chinamasa to restructure the country’s debt is a recognition by the government that food dependency, low growth, and virtually no foreign investment is not sustainable as economic policy. Zimbabwe owes creditors $8.1 billion, with nearly half that amount in arrears. Indeed, between 2011 and 2014 alone, 4,610 companies in the manufacturing sector closed, and 55,443 jobs were lost according to United Nations and African Development Bank figures.
Zimbabwe’s reform effort began in 2009 when Zimbabwe moved from hyperinflation—which saw poverty rates rise to 72 percent and triggered the sharpest drop in gross domestic product of any economy since the end of World War II—to a dollar-based economy.
With no other options, the economically fraught country entered into a stabilization program with the IMF and has performed well. At the World Bank/IMF meetings in Lima, Peru last month, Chinamasa presented a plan to restructure the country’s debt that was endorsed by the U.S., the U.K., Germany, France, the World Bank, and the IMF. If it stays on track, Zimbabwe could restructure its outstanding debt by as early as mid-2016, which would be a first step in creating an environment that can attract desperately needed external financing and investment.
Related to these economic reforms is legislation pending in parliament that would allow farmers, black and white, to lease land for 99 years. Long-term leases would help restore the rule of law in a sector characterized by arbitrary land seizures, and signal to foreign investors that commercial contracts may in fact be respected.
The country’s commercial banks need to support any land-tenure legislation so that leases can serve as collateral for badly needed credit and financing for farmers. It is estimated that $2 billion is required to restore a semblance of productivity in the once-robust agricultural sector. Transferable long-term leases that can be used as collateral are the only hope for the recovery of Zimbabwe’s agricultural sector.
Even with progress on debt restructuring and land reform, the country’s indigenization policy, which requires Zimbabweans to own 51 percent of any foreign investment, continues to be a deterrent to revitalizing the economy. While responsibility for implementing the policy has been moved from the more radical Ministry of Youth and Economic Empowerment to the relevant line ministries, the government still needs to be transparent in the enforcement of the policy. Local content laws are part of the investment landscape across Africa, but Zimbabwe’s have been more onerous than any other country in the region.
Zimbabwe has entered a political and economic transition whose outcome is far from clear. The reformers have gained momentum with the tacit support of the country’s 91-year -old president, Robert Mugabe. The increasingly bitter succession struggle, that pits the president’s wife, Grace Mugabe, against the veteran ZANU-PF leader and vice president, Emmerson Mnangagwa, as well as the former party stalwart, Joyce Mujuru, among others, will impact the pace and direction of the reform process. Nevertheless, Zimbabwe has few options but to continue its re-engagement with Western financial institutions and donors.
Zimbabwe’s former friends should work to encourage these fledgling reforms, particularly those aimed at engaging Zimbabwe’s battered but determined private sector. After all, the private sector has contributed significantly to democratic progress across the continent, including in Kenya, South Africa, and Nigeria.
Indeed, the European Union made the right move in 2013 when it lifted most of its sanctions on Zimbabwe, imposed in 2002 in response to electoral fraud and human rights abuses, in an effort to encourage economic and political reform. The EU also extended more than $200 million in financial support. Travel and financial sanctions still remain on Mugabe and his wife, as does an arms embargo on the nation.
Congress and the Obama administration should follow the EU’s lead and sharply reduce its sanctions on Zimbabwe. Even though current sanctions are targeted on 100 individuals and a number of entities, they have been a deterrent to any new investment in the country.
The U.S. can keep sanctions on Mugabe without negatively impacting the majority of Zimbabweans, as current U.S. policy does, by allowing the country to participate in the African Growth and Opportunity Act (AGOA), which provides duty free access to the U.S. market for some 6,400 products.
Participation in AGOA would stimulate job creation, innovation, and economic and political reform as well as support labor-intensive sectors such as manufacturing, apparel, and agricultural producers. In Zimbabwe, business and the private sector are key advocates of reform—this is where the U.S. should be placing support.